When you live the Dividend Lifestyle in retirement, you enjoy a predictable income stream that keeps up with and often beats inflation. Home Depot stock is a great example. Home Depot stock has increased its dividend by 10% per year on average for the past decade. If their dividend was 40 cents 10 years ago, they bumped it to 44, then 49, then 55 and so on. It results in a 10% a year increase in dividends, which means a 10% increase in income every year for the retiree.

The ‘ah-ha’ moment is tough to have in dividend investing because it doesn’t happen overnight. It’s such a long, drawn-out process. It doesn’t get exciting until you’ve been doing it for so long that you’re no longer excitable in some cases! The Chinese are known to be very strategic in their thinking. Economically, militarily, and politically, they are patient, and they always play the long game waiting things out until the time is right. I’m not suggesting you buy Alibaba stock, but as dividend investors, we could benefit from their temperament and long-term way of thinking.

A Dividend Aristocrat is a company that has not only paid but increased their dividend every year consecutively for a minimum of 25 years. That means that if they paid a dividend 30 years ago and that dividend was one penny, and then the next year it was two pennies, then today it’s 30 cents per share, that would be an example of a Dividend Aristocrat. This is the sign of an extremely healthy company and one of the things we look for when building a portfolio for the Dividend Lifestyle.

Buy, hold, and reinvest: It’s ridiculously simple, not easy, but simple. Frankly, if you just buy and hold the biggest and best “franchise” names, the bluest of the blue chips if you will, and you never mess with them, it’s hard to screw up. You get in trouble when you start trading. Nervous energy is a great destroyer of wealth, said legendary investor Fayez “The Sphinx” Sarofim, a big buy and hold blue chip guy. I’m a firm believer in keeping things simple, and over the years, I’ve come to understand that true genius lies in simplicity.

I have shared with you how the Dividend Lifestyle has impacted my family in a positive way, but let’s examine what unfortunately happens to many “investors” today who are not practicing these techniques. Suppose a person is buying and selling stuff based on the headlines, or they have an active advisor who is getting in and out constantly chasing the latest greatest opportunity they saw on a CNBC commercial. In that case, you’re really missing the boat when it comes to the compound interest effect. You aren’t getting the stock splits as my Dad enjoyed. You aren’t getting the tax and cost advantages either. 

My Dad owned Home Depot stock in the nineties and did very well with the investment. My Dad’s name is Bob, and I owe much of my success today to him and my Mom, Anne. Big Bob is not a super affluent guy or anything, but he’s a good man, has the right temperament, and most of all, he understood dividend-paying stocks learning lessons by watching Grandpa Fred.

Everyone wants magic to happen with their money! Albert Einstein called compound interest the eighth wonder of the world. It’s essentially interest that’s producing interest, and dividend-paying stocks are almost a perfect example of this. If you own 100 shares of Exxon stock, and Exxon stock is currently yielding you roughly a 6% dividend, that means if you never put another penny into Exxon stock, if you sit there and do nothing, this time next year, you won’t own 100 shares. You’ll have 106 shares. Do that the next year, and now you’re getting 6% on 106, so now you’re going to have 112.5.

Ever heard the term “immigrant advantage?” A lot of my favorite influencers talk about this, including Gary V, Wes Watson, and many others. When you come from nothing, you have nothing to do but fight, scrap, and compete, which oftentimes leads to massive success. But the danger comes when the second and third generations are handed the wealth, the financial assets we discussed, with out the work ethic, grit, and experiences that it took to create the wealth in the first place. The first generation came here with nothing.

From an expense standpoint, owning a basket of individual dividend payers and holding them for the long run, is about as cost-effective as you can get. As stated, the cost of ownership is super low because it doesn’t cost you anything to own a share of stock. There’s no internal expense like with a mutual fund or other packaged product because there’s no middle man. It’s just you. If you work with an advisor, the only expense you would have is the advisory fee.

The Dividend Lifestyle is all about long-term, smart investments in well-capitalized U.S. businesses with a track record of distributing profits to shareholders in the form of dividends. 

You can’t call a mutual fund manager and say, “Hey, Jim, can you look at maybe selling Uber because it’s down this year, and I could really use help with my taxes?” It doesn’t work that way. With dividend-paying stock portfolios, where you have total control of what you own, you and your advisors can buy and sell when you want. You dictate your taxation.

One of the advantages of the Dividend Lifestyle is that, unlike mutual funds, exchange-traded funds, or annuities, where you don’t have control over the stocks inside that packaged product, with a dividend strategy, you and your advisor have 100% choice and control over the companies you are invested in. 

Everybody loves the story of Grandpa Fred and the way he was able to pass wealth down for generations to come but is this strategy available to everyone? The short answer is yes, it’s available to everyone, but the longer answer is that it takes a lot of time to develop, like anything good. 

Wall Street was built on the backs of everyday, Joe six-pack traders. The big firm’s interests are in their profits, not yours. They win whether you make money or lose, so of course, there is a natural conflict, and they want you to actively trade. They want you to chase the new shiny object because it benefits them via trading costs, bid ask spreads, fund expenses, ext. Wall Street bankrolls the biggest and best marketing firms in the world to help them create media and technology designed to grab your attention and keep you engaged.

Another big mistake to avoid would be losing sight of the long term. As human beings, it’s very difficult for us to think long term. When you think about your future self, it’s tough for most not to go straight for that instant gratification. Deep down inside, we all are intrigued by the get-rich-quick scheme, the short cut to a million. We fantasize about hitting the lotto or coming up with a new invention and striking it rich overnight. We daydream about what life could be if we suddenly inherited $50 million from a long-lost uncle.

As we’ve said, there is so much “financial noise” today. Information is coming at us constantly, pouring out of television, radio, computer, and from our buddies at the gym. It’s hard to block out the noise, and getting distracted from our long-term goals can be easy. Just remember, this is what Wall Street and their marketing departments are trying to do.

We’re seeing it right now, in 2022. I’ll use technology stocks as an example. We saw this in the late ’90s, and we’re watching it play out again in real-time in 2022. You have a part of the market, which we’ll call “growth.” A lot of the big Tech stocks are considered growth stocks meaning they are growing earnings faster than the general market and typically carry higher valuations as investors believe they are poised for beast mode growth, hence the name.

Fads come and go in most industries. Just take a look at a photo of yourself from the 80s with the big hair and bike shorts and tell me otherwise! I’ve been in the financial services business long enough to see certain things that were popular at one point fade in the wind. That seems to always be the case in the investment industry. There will always be the new sexy opportunity, whether it’s gold, junk bonds, cryptocurrency, or God knows whatever comes next.

I’ve had an interest in marketing, sales and influence, and interpersonal communication as far back as I can remember. I used to love going door to door growing up in the 1980s for my elementary school fund raisers, selling chocolate bars or Christmas wrapping paper. Sales fascinates me.

The Dividend Lifestyle is a strategy for investors to safely produce passive income from dividends generated from a portfolio of high-quality dividend-paying stocks.  In other words, living off their interest.  Passive income can be generated by various asset classes including stocks, bonds, annuities, and real estate.  When it comes to the most cost-effective, predictable, and safe way to accomplish passive income, particularly for retirement income, it’s tough to beat the Dividend Lifestyle!